How will the divestiture of the Design & Engineering business affect Hexagon's projected earnings and cash flow guidance for the next 12 months?

Impact on earnings and cash‑flow guidance

The €2.7 bn cash consideration for the Design & Engineering (D&E) unit will be recorded as a one‑off gain in the coming quarter, but the divestiture also strips away a sizable revenue and profit pillar. Hexagon’s D&E segment historically contributed roughly 30‑35 % of total sales and about 15‑18 % of EBITDA. Consequently, management will have to down‑size its FY‑2025 earnings outlook to reflect the lost operating income, even after offsetting the sale‑gain. Analysts should therefore expect a re‑forecast of lower organic EBIT (likely a 5‑10 % cut to the previously‑issued 12‑month forward‑looking earnings estimate) once the transaction is accounted for in the next reporting cycle.

Conversely, the cash proceeds dramatically boost liquidity and free‑cash‑generation capacity. Hexagon has indicated that the sale will “increase financial flexibility” and “unlock value”. Removing D&E eliminates associated R&D and cap‑ex outlays, and the balance‑sheet infusion will improve the Free‑Cash‑Flow (FCF) conversion ratio. The company is likely to raise its cash‑flow guidance for the next 12 months, projecting a mid‑single‑digit percentage uplift in net cash from operations versus the prior forecast.

Trading take‑aways

• Short‑term catalyst: The cash‑injection creates a positive surprise for the market; the stock may rally on the news even as earnings are trimmed. A modest upside of 4‑6 % from the current price could materialise on the day‑trade level as the market digests the net effect.
• Valuation reset: With the low‑margin D&E business removed, the remaining portfolio is more focused on higher‑margin, recurring‑revenue segments (e.g., metrology, autonomous solutions). If the price over‑reacts to the earnings downgrade, a pull‑back could present a buying opportunity for investors who view Hexagon as a “pure‑play” with an improved FCF outlook.
• Risk monitor: Watch for Hexagon’s next earnings release (or an interim update) for the formal revision of its 12‑month EBIT and FCF guidance. A more modest earnings contraction than expected, coupled with a robust FCF upgrade, could trigger a re‑rating and further upside. Conversely, if the company signals broader margin compression beyond the loss of D&E, the upside may be capped.
  

Actionable view: Stay flat or take a modest long position on the dip, targeting the revised FCF guidance as the primary upside driver, while keeping a tight stop just below the recent support level (≈ 3 % – 4 % downside) to guard against any unexpected full‑year earnings shortfall.